Restoration Hardware 2015 Annual Report Download - page 62

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Measurement of Inventory
In July 2015, the FASB issued Accounting Standards Update 2015-11—Inventory (Topic 330): Simplifying the Measurement of
Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net
realizable value. ASU 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. The guidance must be applied on a prospective basis and is
effective for periods beginning after December 15, 2016, with early adoption permitted. ASU 2015-11 will be effective for us in our
first quarter of fiscal 2016. We do not currently believe this guidance will have a material impact on our consolidated financial
statements.
Business Combinations
In September 2015, the FASB issued Accounting Standards Update 2015-16—Business Combinations (Topic 805): Simplifying
the Accounting for Measurement-Period Adjustments. The guidance requires the acquirer to recognize adjustments to provisional
amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined. The
business combination guidance is effective for interim and annual periods beginning after December 15, 2015, with early adoption
permitted, and is to be applied on a prospective basis. We have elected not to early adopt. We are evaluating the impact of adopting
this new accounting standard on our consolidated financial statements.
Classification of Deferred Taxes
In November 2015, the FASB issued Accounting Standards Update 2015-17—Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes, to simplify the presentation of deferred income taxes. The amendments in ASU 2015-17 require that
deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The current requirement
that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected
by the amendments in the update. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016, and interim periods
within those years, and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods
presented. We have elected to early adopt the guidance on a retrospective basis effective with the consolidated balance sheet as of
January 30, 2016. This is a change from our historical presentation whereby certain deferred tax assets and liabilities were classified as
current and the remainder were classified as non-current. To conform to the current period presentation, we reclassified $27.9 million
and $0.1 million, which were previously included in current assets and current liabilities, respectively, as of January 31, 2015, to non-
current assets and non-current liabilities, respectively, on the consolidated balance sheets.
Accounting for Leases
In February 2016, the FASB issued Accounting Standards Update 2016-02—Leases, which, for operating leases, requires a
lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance
sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the
lease term, on a generally straight-line basis. The ASU is effective for public companies for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effects that the
adoption of ASU 2016-02 will have on our consolidated financial statements and anticipate the new guidance will significantly impact
our consolidated financial statements given we have a significant number of leases.
Financial Instruments
In January 2016, the FASB issued Accounting Standards Update 2016-01—Financial Instruments—Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities, which amends various aspects of the recognition,
measurement, presentation and disclosure for financial instruments. The new standard is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2017. Early adoption is permitted only for certain provisions. We are
evaluating the impact of adopting this new accounting standard on our consolidated financial statements.
Recognition of Breakage
In March 2016, the FASB issued Accounting Standard Update No. 2016-04—Recognition of Breakage for Certain Prepaid
Stored-Value Products. The new guidance creates an exception under ASC 405-20—Liabilities-Extinguishments of Liabilities, to
derecognize financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model. The new
guidance is effective in fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is
permitted. This guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the
date of adoption. We are evaluating the impact of adopting this new accounting standard on our consolidated financial statements.